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NEW: NCUA approves modified stress test rules

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ALEXANDRIA, Va. (4/24/13, UPDATED 11: 28 a.m. ET)--A new rule on stress tests for large credit unions was adopted today by the National Credit Union Administration. It includes changes recommended by CUNA, but CUNA still believes the rule is not necessary.
CUNA has commented to the agency that new regulations are not needed to ensure that credit unions conduct robust stress tests and comprehensive capital planning because it is in their own best interests, and the best interest of their members, to do so.
The NCUA proposed the rule last October. It will require federally insured credit unions with assets exceeding $10 billion to develop and maintain capital plans, and undergo annual stress tests.

CUNA-endorsed changes made to the rule include dropping a provision that would have required public disclosure stress test results. Also under the approved rule, credit unions can apply after three years to have their own stress test results used, instead of NCUA's, for NCUA's review.

Also, the agency increased its cost projection to a more realistic $5 million, up from $4.2 million, for implementation of the rule in just the first year.  That price tag will be shouldered by all federally insured credit unions.

The stress test requirements, as adopted, will require covered credit unions to conduct specific capital analyses to evaluate how changes in variables, parameters and inputs used by credit unions in their capital plans could affect their capital.

CUNA also had recommended that, if adopted, the rule should:
  • Require the NCUA to coordinate with the Federal Reserve Board to have the Fed conduct the reviews of the credit unions' tests;
  • Not to subject affected credit unions to sanctions for failure to meet capital planning or stress test benchmarks; and,
  • Not establish a formal process for rejecting a credit union's capital plan.
The rule passed by a vote of 2-1, with NCUA board member Michael Fryzel casting the dissenting vote.  Board member Rick Metsger signaled a willingness to consider additional changes to the rule.

CUNA ready to raise QM issue in latest high-level housing finance reform meetings

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NEW YORK (4/24/14)--Credit Union National Association Housing Finance Reform Task Force member Bill O'Brien Tuesday attended the latest Obama administration meeting with stakeholders on housing finance reform. 
O'Brien, president/CEO of $886 million-asset Suffolk FCU, Medford, N.Y., participated in a roundtable discussion in New York headed by Department of Housing and Urban Development Secretary Shaun Donovan. The meeting followed by one day an exclusive meeting between White House and CUNA officials to discuss credit union priorities regarding housing finance reform policy issues.
Also on Wednesday, in Washington, D.C., CUNA attended the final White House group meeting of housing finance reform stakeholders. Deputy General Counsel Mary Dunn and Assistant General Counsel for Special Projects Robin Cook stressed what small lenders need in terms of setting up the Federal Mortgage Insurance Corp. while winding down Fannie Mae and Freddie Mac, as proposed by draft Senate legislation.
At the New York meeting, O'Brien was prepared to bring up CUNA's and credit unions' concerns about a point made recently by Donovan: That the qualified mortgage model, as defined under the Consumer Financial Protections Bureau's Ability-to-Repay rule, would become the standard mortgage for the secondary market.
CUNA argues that if the QM rule became the secondary market standard, credit-worthy individuals who fall outside the criteria could be denied a mortgage.
CUNA has previously raised this issue with the White House and with the Senate Banking Committee, which is scheduled to consider its housing finance reform bill on April 29.
Donovan most recently made the point about the QM standard during a Tuesday webinar hosted by the Bipartisan Policy Council. During that session, Donovan said the administration is pleased with the direction of the Johnson-Crapo reform draft for four reasons:
  • The government guarantee is made explicit rather than implicit;
  • The bill would attracts private capital back into play;
  • It proposes to use market-based incentives to ensure broad access to mortgage market; and
  • It addresses affordability across housing market.

Ala. LICU teaches 'How to Win the Money Game'

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ALEXANDRIA, Va. (4/24/14)--Tuscaloosa (Ala.) CU's efforts to provide 450 participants with credit counseling, resume-writing help and other job and educational assistance were highlighted in this month's edition of the FOCUS eNewsletter.

FOCUS is published monthly by the National Credit Union Administration's Office of Small Credit Union Initiatives. Tuscaloosa CU, a designated low-income credit union, used Community Development Revolving Loan Fund grant money to cover many costs of the West Alabama Education and Job Fair, including:
  • Creating a financial literacy curriculum, including a class called "How to Win the Money Game," on budgeting and personal finance;
  • Reproducing materials for attendees;
  • Securing event space; and
  • Marketing the event.
A total of 28 companies and 10 social service agencies took part in the event, and loan officers from other local credit unions provided counseling for those in attendance. Attendees could also register with employment services and create new resumes stored on their own new flash drives. 

Tommy Cobb, president/CEO of the $61 million-asset credit union, said his credit union would not have had the money needed to put on the event without an NCUA grant. There had never been a citywide job fair in Tuscaloosa.

For more of this month's FOCUS eNewsletter, use the resource link.

Major changes needed if NCUA stress-testing rule advances: CUNA

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WASHINGTON (4/24/14)--While the Credit Union National Association opposed the capital planning and stress-testing proposal issued by the National Credit Union Administration in December, it urged the agency to include significant changes if the board votes to adopt the rule in final form.

The rule is on the agency's open board meeting agenda today. The final rule would directly impact credit unions with assets of $10 billion or more.
CUNA will also be reviewing carefully the agency's field-of-membership proposal regarding associational group additions, which is also on the agenda.
Regarding the stress-testing proposal, CUNA cited among its concerns the hefty $4 million total price tag all federally insured credit unions would shoulder for the agency's implementation of the rule in just the first year.
CUNA is also concerned that the proposal called for the results of the stress tests to be made public and that NCUA's approach would duplicate what large credit unions are already doing in terms of stress testing.
These concerns are in addition to the fact that there is no statutory requirement for such testing, CUNA has noted.

Another top consideration emphasized by CUNA is the timing of the adoption of the stress-testing rule. CUNA argues it should not be approved prior to the issuance of a risk-based capital (RBC) rule because stress-test results could impact RBC requirements.
The NCUA proposed a controversial RBC plan at its January open board meeting, and credit unions have until May 28 to comment. CUNA has urged a 90-day extension to that comment deadline.

CUNA, CUANY thank lawmakers seeking RBC plan changes

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WASHINGTON (4/24/14)--The Credit Union National Association and the Credit Union Association of New York thanked House Financial Services Committee members Peter King (R-N.Y.) and Gregory Meeks (D-N.Y.) for their concern expressed regarding the across-the-board approach set forth in a recent risk-based capital proposal.
Such an approach, currently being considered by the National Credit Union Administration, "would be burdensome for credit unions, expensive (potentially drawing up to $7 billion in credit union capital out of the economy), and likely impose on credit union members higher loan rates and service fees, and diminish members' return on savings," CUNA President/CEO Bill Cheney and CUANY CEO William Mellin wrote.
King and Meeks last week took their concerns to the NCUA and asked their House colleagues to join in the fight to amend the RBC rule in a letter to the agency. (See April 21 News Now: Lawmakers seek colleagues' backing on RBC plan changes.)
The legislators' letter encouraged the NCUA to:
  • Take into account the cost and burden of implementing new risk-based capital requirements beyond the current leverage ratio;
  • Provide justification and more clarity as to why the proposed risk weights differ from those applied to other community financial institutions; and
  • Give credit unions more time than the proposal's allotted 18 months to come into compliance after it is finalized.
"We strongly support your shared view, as expressed in your letter to [NCUA] Chairman Matz, that certain changes and clarifications be made to ensure that a rule does not unduly burden credit unions, and does not adversely affect healthy credit unions' ability to meet the needs of their members," Cheney and Mellin said.

CFPB reported to be considering changes to QM loan fees

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WASHINGTON (4/24/14)--The Consumer Financial Protection Bureau is expected to ease its rules setting fees for Qualified Mortgage loans, as defined under the bureau's Ability-to-Repay rules, American Banker reported Wednesday.
The article quoted Leonard Chanin, a partner at Morrison & Forester who is the former head of regulation at the CFPB.
The existing CFPB rule on QM fees paid to affiliates are restricted to 3% of the loan amount, and that must include points. Chanin told American Banker that he has heard from unofficial sources that the agency is working to clarify the ATR rule.
He said addressing fees passed through an affiliate would be an area that would be relatively easy to fix or clarify. The article said that Richard Andreano, an attorney at Ballard Spahr, agreed with Chanin's assessment, adding that he expects the CFPB to address the issue when it releases technical changes this spring.
The Credit Union National Association has noted the QM rule's 3% limitation on points and fees for a qualified mortgage loan may be problematic for some credit unions, and has also said the rule's total debt-to-total-monthly-income ratio of 43% should be expanded.
As CUNA Deputy General Counsel Mary Dunn told Bloomberg Business News Americas back in December, there are many creditworthy borrowers with debt-to-income ratios that exceed the limits proposed in the QM regulations. "You can still demonstrate an ability to repay a loan, but have a debt-to-income ratio that is higher than 43%," Dunn said.

Data breaches could have been avoided: Verizon report

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WASHINGTON (4/24/14)--A new Verizon data security report reveals that many point-of-sale (POS) breaches could be prevented by taking basic security enhancement steps. Those steps include limiting remote access to networks, using POS devices only for their intended purpose, updating antivirus software and providing two-factor identification on the perimeter of networks.

The report, released Wednesday, was compiled from data on 1,367 confirmed data breaches and 63,437 security incidents that occurred in 95 separate countries. Fifty organizations provided information for the report.

Click to view larger image Source: Verizon
The year 2013 may be tagged as the "year of the retailer breach," but a more comprehensive assessment of the information security risk environment shows it was a year of transition from geopolitical attacks to large-scale attacks on payment card systems, Verizon said.

Through its data analysis, Verizon found that nine patterns described 92% of the confirmed data breaches cited in the report. "We find it simply astounding that nine out of 10 of all breaches observed by 50 global organizations over a full year can be described by nine distinct patterns," report author Wade Baker wrote.

The nine patterns are:
  • Denial of service attacks;
  • Crimeware;
  • Cyber-espionage;
  • Web application attacks;
  • Insider misuse;
  • Miscellaneous errors;
  • Physical theft and loss;
  • Payment card skimmers; and
  • POS intrusions.
The Verizon analysis found that:
  • Web app attacks accounted for 35% of breaches; and
  • POS intrusions accounted for 14% of breaches.
Web app attacks will continue to compromise networks if organizations do not regularly test their network and software security, and update their computer systems, Verizon said.

"Most organizations cannot keep up with cybercrime--and the bad guys are winning," Baker wrote. "But by applying big data analytics to security risk management, we can begin to bend the curve and combat cybercrime more effectively and strategically," he added.

Overall, Baker said, "organizations need to realize no one is immune from a data breach. Compounding this issue is the fact that it is taking longer to identify compromises within an organization--often weeks or months, while penetrating an organization can take minutes or hours."
For the full Verizon report, use the resource link.

Mortgage-closing pain points ID'ed, CFPB plans action

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WASHINGTON (4/24/14)--The complexity and size of mortgage closing document packages, and the short amount of time given to review those documents, are creating issues for homebuyers, the Consumer Financial Protection Bureau said in a report released Wednesday. The bureau has reacted to these reported issues by planning a new pilot program that will examine how technology can be used to ease the closing process.
The CFPB report, "Mortgage closings today," was developed through examinations of consumer complaints--or mortgage-closing "pain points." The report notes consumers are:
  • Frustrated by the short amount of time they have to look over the closing documents, and the pressure some put on them to move quickly and sign the documents they often do not understand;
  • Overwhelmed by the sheer volume of paperwork that is provided to help them better understand the closing process and to fulfill various regulatory requirements; and
  • Confused by the legalese and technical jargon contained in many closing documents.
"When the CFPB's new Know Before You Owe mortgage rule takes effect, it will address some of these challenges" the bureau said in a Wednesday release. "However, this rule does not apply to any of the other paperwork consumers receive at the closing table. The bureau only has jurisdiction over a few forms in the closing stack. More needs to be done to improve the closing experience for consumers," the CFPB release added.
Electronic closings (e-closings) may be one way these closing issues can be avoided, and the overall process can be improved, the CFPB said. E-closings are being used in some instances but have not been widely adopted, the CFPB said.
As part of its pilot program, the CFPB said it plans to:
  • Test whether educational materials such as document summaries, term definitions or process explanations that can be reviewed prior to the closing table help improve the process for consumers, and whether reordering these documents can change the consumer process;
  • Study technologies that could help consumers see their closing documents ahead of time, and whether earlier availability of closing documents will help consumers; and
  • Test tools that will help spot closing document errors and discrepancies.
The goal of the project is not to write a new rule, the CFPB said.
For more, use the resource link.